Announcing the Winner in the Epic Corporate Battle of Innovation vs. Efficiency

Posted By Dr. John Sullivan On March 11, 2013 @ 5:11 am In Advice and How-Tos | 17 Comments

Take notice: If what you do produces only average results … prepare to be eliminated!

We are witnessing a visible revolution and shift in corporate focus. The public visibility of this shift is unusual because strategic changes in the corporate world are normally slow in coming. In fact, the majority of corporate leaders typically fail to identify or even grasp it when what is known as a “strategic inflection point” has been reached.

So in case you missed it over the last two weeks[1], I’m announcing here that the long-established corporate goal of maximizing productivity or efficiency has lost the battle for supremacy and it has moved down into second place. The winner and now champion for at least the next decade is the corporate goal of … dramatically increasing innovation! If you can bear with me for a minute, I’ll give you some quick examples to illustrate this dramatic and revolutionary shift.

The goal of “continuous improvement” is being supplanted by the expectation of “exceptional work.” We are witnessing the “death of the average” and the dawn of the era of innovation.

Anything That Gets in the Way of Innovation Is Now a Goner!

The major retailer Best Buy just last week shocked the HR world by announcing that it had killed it’s justifiably famous ROWE (Results Only Work Environment) program at its corporate headquarters. The cancellation came despite the program’s amazing productivity results. ROWE has measurably produced up to a 41% increase in productivity and up to a 90% reduction in turnover. These are breathtaking results by any standard. When it was introduced in 2005, ROWE was heralded as the wave of the future, demonstrating that productivity was more important than “showing up.” But this is 2013, and the new wave of the future is innovation not productivity, so the famous program is history.

This is a decision that would have been unheard of before innovation became such a dominant corporate requirement. If the decision seems crazy to you, you need to learn about the tremendous business impact of innovation.

Explaining the Seemingly Illogical Decision to Sacrifice Productivity and Image

A second equally stunning illustration of the shift occurred just last week when Yahoo announced that it was also killing its well-established productivity-focused telecommuting program, and it is now requiring “all hands” to work on-site. The announcement created an international furor, including a front page story in the NY Times[2] and it certainly hurt Yahoo’s employer brand image. To most, the decision simply didn’t make sense. Unfortunately, 99% of the commentators have mislabeled this policy shift as a trend leading to “the death of telecommuting” and an attack on working women. However, they couldn’t be more wrong.

The actual reason for the decision is that data shows that the serendipitous interactions that occur between onsite workers increases collaboration, and thus innovation. So what actually happened was that the need for innovation triumphed over a clearly productive telecommuting program. If you have been puzzled by these two seemingly illogical decisions, you now know what the CEOs of these two firms already knew. And that is that these two shifts would only make sense if innovation was a significantly higher contributor to profit than being efficient or even productive. What both the Best Buy and the Yahoo decisions actually signal has literally nothing to do with telecommuting; it is the beginning of the end of the decade-long primary corporate goal of being productive. And at the same time, the simultaneous elevation of the new corporate goal of what is known as “serial innovation.”

Apple Illustrates Why the Battle That Has Been Won by Serial Innovation

You might be justifiably thinking that the action of two firms don’t make a trend, so it may be appropriate to point out that numerous other firms have already made this goal shift.

Apple is the role model when it comes to shifting to serial innovation. As a result of its goal shift, Apple is perennially at the top of the Fortune most-admired-firms list and it has become the No. 2 most valuable corporation in the world. Over the last decade, it moved from near bankruptcy to introducing at least eight wildly successful products. Each of these products ended up dominating not just Apple’s original industry (which was PCs) but completely different industries, including electronic music, online and retail stores, telephones, telephone apps, and the tablet computer. Apple and its new way of doing business have now become the benchmark standard for serial innovation. Which incidentally I define as “continuous industry dominating innovations that change the game and stun the competitors.” Each individual employee at Apple on average generates over $2.2 million each year in revenue (compared to Yahoo’s $353,000).

So, if you are a manager or work in HR, you would be the “corporate hero of the decade” at your firm if you could elevate your firm’s employee output value to those stratospheric levels.

Google Never Bothered With Efficiency as a Goal

Some relatively new firms that also dominate their industry never bothered to adopt efficiency as their primary goal. Google, the No. 3 most valuable firm in the world, with a stock price over $800 (compared to Yahoo’s $21), has from Day 1 focused on serial innovation. Its focus on innovation has allowed it to dominate not just the Internet search engine industry but also telephone operating systems, maps, online advertising, driverless cars, and more recently, web browser usage.

The most illustrative example of Google’s formal push for innovation over efficiency and continuous improvement is the following quote from Larry Page. The quote, as reported by the well-known author Stephen Levy, highlights how continuous improvement can actually prevent you from being “wildly successful.” (I added the italics for emphasis.)

Larry Page lives by the gospel of 10x. Most companies would be happy to improve a product by 10 percent … The way Page sees it, a 10 percent improvement means that you’re basically doing the same thing as everybody else. You probably won’t fail spectacularly, but you are guaranteed not to succeed wildly.

That’s why Page expects his employees to create products and services that are 10 times better than the competition. That means he isn’t satisfied with discovering a couple of hidden efficiencies or tweaking code to achieve modest gains. Thousand-percent improvement requires rethinking problems entirely, exploring the edges of what’s technically possible, and having a lot more fun in the process.

Clearly the expectation of a 1,000% rate of improvement makes it clear that innovation is king at Google.

Facebook Wants Innovation and Speed to the Point Where it Encourages Failure

Facebook, the most successful IPO in history has also never bothered with efficiency as a goal. It dominates its field with well more than 1 billion social media users but it also developed well-known innovations including the “like button,” and its new campus is a model for facilitating collaboration and innovation. Facebook makes it unambiguously clear that innovation is the top corporate goal. To ensure that everyone gets the message, this organization paints innovation slogans on the walls throughout their campus. I couldn’t help but notice on a recent visit a prominent slogan that said “Move fast and break things.” Well nothing says forget efficiency more than encouraging workers to break things.

Additional quotes from it website further support their focus on innovation …“Innovation is paramount” and “We welcome pioneers. In fact, we insist on them.” Its CEO has made it clear to even the shareholders of his expectations for serial innovation in his letter to Facebook’s shareholders. (Note: I added itaics for emphasis.)

Focus on Impact – If we want to have the biggest impact, the best way to do this is to make sure we always focus on solving the most important problems. It sounds simple, but we think most companies do this poorly and waste a lot of time. We expect everyone at Facebook to be good at finding the biggest problems to work on.

Be Bold – Building great things means taking risks. This can be scary and it prevents most companies from doing the bold things they should. However, in a world that’s changing so quickly, you’re guaranteed to fail if you don’t take any risks. We have a saying: “The riskiest thing is to take no risks.” We encourage everyone to make bold decisions, even if that means being wrong some of the time.

Because being innovative requires you to be first. Speed and rapid learning are also essential components of the serial innovation equation, as noted in this Zuckerberg quote:

Move Fast – Moving fast enables us to build more things and learn faster. However, as most companies grow, they slow down too much because they’re more afraid of making mistakes than they are of losing opportunities by moving too slowly. We have a saying: “Move fast and break things.” The idea is that if you never break anything, you’re probably not moving fast enough.

Facebook’s emphasis on speed and making mistakes helps to explain why the CEOs of Yahoo and Best Buy didn’t take the cautious approach and slowly phase out telecommuting.

Other Firms Outside of High-tech Have Made the Shift Toward a Focus on Innovation

In addition to the high-tech firms listed here, firms outside of that industry are also making the shift toward a primary corporate focus on innovation. Some of those firms include Zappos, Amazon, Pixar, Glaxo Smith Kline, Netflix, and the previously mentioned Best Buy. The key learning is that this shift toward innovation will affect every industry, because I’ve not been able to find a single industry that is exempt from intense competition, new technology development, and rapid change. Those in the corporate world outside of high-tech that argue that they are exempt from the need for speed and innovation are part of the problem, not the solution.

If You Produce Average Results … Your Job May Be in Jeopardy

As an employee or a manager, you need to keep on top of this phenomenal shift because, as a result, “exceptional” and “innovative” will begin to replace “continuous improvement” as the corporate definition of success. Because average is the enemy of innovation, it means that if you are an average performer or if you work in a low innovation continuous improvement function like HR, accounting, 6 Sigma, or legal, you need to be aware that you are at risk of becoming a lower corporate priority and having your funding reduced. For years, professionals in these fields have made their name by being efficient, risk adverse, and continually improving by 3%-5% each year. But the world of business has changed, as have CEO expectations, so in the future only serial innovators who can produce greater than 50% improvement will be champions.

You might still be able to survive in a corporation by demonstrating your exceptional productivity but unless you are a serial innovator, you simply can’t expect to be respected, well-funded, or promoted.

HR Must Accept the Role of the “Innovation Catalyst”

The HR function must be a leader in spurring innovation first because employee costs are often the highest single variable cost item in a corporation, but also because all innovations come from people. In the past, HR could get by with the same level of conservatism and continuous improvement as accountants and lawyers but changes in the business world and the V.U.C.A.[3] environment will now make it impossible for any business function to be anything but fast and a driver of innovation.

Many outsiders consider HR to be “risk-averse” and focused on efficiency. There are of course some exceptions to the efficiency-dominated HR function, the leader being Google’s POP’s group[4], which is far ahead of every other HR function that I have researched in fostering using a data-driven approach to increase corporate innovation.

What is needed is for HR to become what I call an “innovation catalyst.” However, the shift from traditional HR will be difficult, primarily because many HR leaders grew up in the efficiency and minimizing legal risk environment, and that’s all that they know. Some leaders who I know simply hope to “wait it out” and put off any shift until after they retire. The shift will be even more difficult because there are no publicly available HR innovation playbooks, no budget allocations or even metrics for increasing HR’s impact on corporate wide innovation.

A further roadblock is HR’s focus on equal treatment. This is an innovation killer because it takes specialized and focused recruiting, retention, internal movement, and reward processes to attract, keep, and manage innovators. So after understanding that the shift is already occurring, the first step for forward-looking HR leaders to take is to spend time explaining in detail why the shift toward becoming an “innovation catalyst” function must occur and get all in HR to act differently and immediately begin influencing change.

In the cases where HR is in charge of managing the corporate culture, obviously it must act to shift the cultural direction towards serial innovation. Without that cultural shift and a complete buy-in by each individual HR function and professional, innovation will likely become another meaningless HR slogan or value. The last important step is to change HR hiring, budgets, rewards, and HR metrics to reflect this new innovation focus.

Final Thoughts

Innovation is king, long live the king! If you’re still having doubts about the need for your organization or your function to shift to a serial innovation mode, consider what Jack Welsh emphasized years ago and that I have adapted as my defining focus.

If the speed of change inside your organization is slower than the speed of change outside of it… your end is in sight. — Jack Welch, former Chairman and CEO of General Electric